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State Street posted strong Q2 2026 results, with earnings per share of $3.65 versus $2.17 a year ago and revenue up 17% to a record $4 billion. Management highlighted record fee revenue, record net interest income, and strong performance across servicing, investment management and markets.
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The company raised its full-year outlook, now expecting fee revenue growth of 12% to 13% and net interest income growth of 14% to 15%. It also increased expenses guidance, but still expects about 500 basis points of positive operating leverage and a pre-tax margin near 32%.
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State Street set ambitious medium-term targets, including a 35% pre-tax margin and mid-20s return on tangible common equity over the cycle. Executives said growth will come from core businesses, alternatives, digital assets and wealth services, supported by a technology and AI-driven transformation program.
State Street (NYSE:STT) reported sharply higher second-quarter 2026 earnings and raised its full-year outlook, as executives pointed to record fee revenue, record net interest income and continued momentum across investment servicing, investment management and markets.
Chief Executive Officer Ron O’Hanley said the quarter reflected “disciplined execution, deep client engagement, and continued momentum across our businesses.” The company reported second-quarter earnings per share of $3.65, up from $2.17 in the prior-year period. Excluding prior-year notable items, earnings grew 44% year over year, according to O’Hanley.
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Total revenue rose 17% from a year earlier to a record $4 billion. Chief Financial Officer John Woods said fee revenue increased 16% to $3.2 billion, while net interest income rose 18% to $860 million, supported by a 17-basis-point increase in net interest margin to 113 basis points.
Expenses increased 10% year over year to $2.7 billion, excluding notable items, primarily due to higher revenue-related costs and continued strategic investments. The results lifted pre-tax margin by 470 basis points to 34%, while return on tangible common equity rose more than six percentage points to about 26%.
Servicing, Management and Markets Drive Growth
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State Street’s investment servicing business posted second-quarter servicing fees of $1.5 billion, up 13% year over year. Woods said the increase reflected approximately 7% organic growth from client activity, flows and net new business, with additional support from higher average market levels and currency translation.
Assets under custody and administration ended the quarter at a record $57.9 trillion, up 18% from a year earlier. Servicing fee sales totaled $87 million, with Woods citing continued demand across regions and strength in strategic growth areas, including alternatives.
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In investment management, fees rose 29% year over year to $772 million, supported by roughly 9% organic growth and higher average market levels. Assets under management reached a record $6.3 trillion, up 23% year over year, while net inflows totaled $114 billion. Woods said the quarter marked the fifth consecutive quarter of positive organic growth, led by $66 billion of index ETF inflows and $35 billion of cash inflows.
State Street also launched 38 new products and solutions during the quarter, including a tokenized money market solution and a stablecoin reserves fund. O’Hanley highlighted that SPYM, the company’s low-cost S&P 500 ETF, was selected by the U.S. Department of the Treasury as the exclusive default ETF for Trump Accounts.
Markets revenue also strengthened. FX trading services revenue increased 27% year over year, excluding a prior-year notable item, to $494 million, driven by record client volumes. Securities finance revenue rose 19% year over year on higher client lending balances. Software services revenue declined 14%, excluding a prior-year notable item, reflecting elevated on-premises renewal activity in the prior year, though Woods said software and data revenue rose 10%.
Outlook Raised for 2026
State Street raised its full-year outlook, excluding notable items. The company now expects fee revenue growth of 12% to 13%, up from its prior forecast of 7% to 9%. Net interest income is expected to grow 14% to 15%, compared with a previous outlook of 8% to 10%.
Woods said the improved net interest income outlook primarily reflected stronger average deposit balances. The company expects expenses to rise by roughly 8%, up from the prior 5% to 6% forecast, reflecting higher revenue-related costs and continued investment.
Based on its current outlook, State Street expects roughly 500 basis points of positive operating leverage in 2026 and a pre-tax margin of approximately 32%. The company continues to expect an effective tax rate of about 22% and a total payout ratio of roughly 80%, subject to board approval and other factors.
State Street’s capital position remained stable, with standardized CET1 and Tier 1 leverage ratios of 10.8% and 5.3%, respectively, at quarter end. The company returned $631 million to shareholders during the quarter through $400 million of share repurchases and $231 million in declared common dividends. Following the Federal Reserve’s stress test results, State Street announced a 10% increase in its quarterly common dividend to $0.92 per share beginning in the third quarter.
Company Sets Medium-Term Margin and Return Targets
Executives also outlined new medium-term financial targets, including a 35% pre-tax margin and return on tangible common equity in the mid-20s “over the cycle.” O’Hanley said the company’s next phase of growth will be driven by three strategic pillars: growth in core businesses, initiatives in alternatives, digital assets and wealth services, and a technology- and AI-enabled transformation of the operating model.
Woods said investment services is expected to contribute approximately 300 basis points of enterprise margin expansion over the medium term through organic revenue growth and productivity initiatives. Investment management is expected to contribute about 200 basis points, supported by ETFs, index investing, fixed income, wealth, alternatives and tokenization. Markets is expected to add about 100 basis points through geographic expansion, product innovation and efficiency initiatives.
The company expects its transformation program to deliver approximately $1 billion of run-rate benefits by 2029, with about 75% coming from expense productivity and 25% from revenue. Woods said the company anticipates about $500 million of one-time costs, mostly related to severance, as part of the transformation.
During the question-and-answer session, Woods said State Street expects positive operating leverage of 100 to 150 basis points on average over the medium term, which could allow the company to reach the 35% margin target toward the earlier end of its three- to five-year framework. He said the company’s net interest income is expected to rise in the low- to mid-single digits over the medium term, supported by low-single-digit balance sheet growth and net interest margin moving toward the upper end of its 110- to 115-basis-point range.
Executives Discuss Digital Assets and AI
O’Hanley described State Street’s digital asset strategy as focused on serving as infrastructure for clients moving between traditional and digital finance. He said the company is “picking our spots” based on client demand, including tokenized money market funds. Woods said State Street’s digital asset platform is designed to support wallet management and the on- and off-ramps between traditional finance and on-chain activity.
On artificial intelligence, Woods said AI will be embedded into State Street’s operating model, including the use of agentic capabilities in cross-functional teams. He also said the company expects AI tools to improve software developer productivity by 30% to 40%, with additional productivity gains across eligible employees through standardized AI tools.
O’Hanley said the company is entering its next phase “from a position of strength,” citing the scale of its custody, asset management, ETF and markets franchises. “These are the targets that we’re aiming for,” he said. “They’re ambitious, but we’re going to hit them.”
About State Street (NYSE:STT)
State Street Corporation is a global financial services company that provides a range of investment servicing, investment management and investment research and trading services to institutional investors. Its principal activities include custody and fund administration, securities lending, performance and risk analytics, trading and execution services, and foreign exchange. The company also offers investment management through State Street Global Advisors, a major provider of exchange-traded funds and institutional investment strategies.
State Street serves a broad client base of asset managers, insurance companies, pension funds, endowments, and other institutions across North America, Europe, Asia and other global markets.
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The article “State Street Q2 Earnings Call Highlights” was originally published by MarketBeat.
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